Twelve Tips for Your Product Sourcing Strategy — By Andy Geldman
“What’s the best product to sell?” is a question I hear from many new marketplace sellers.
It’s a reasonable question to ask, but it can’t be answered directly. There is no best product to sell, but many – depending on the seller, competition, location, timing and many more factors. Finding things to sell – sourcing inventory – is an activity that’s different for every seller.
With that in mind, here are twelve tips from ecommerce experts around the world to help you shape that activity, and develop your own product sourcing strategy.
1. Never Stop Sourcing
The time to think about getting new lines of stock is when your sales are riding high and everything’s going well. It’s a big mistake to wait until things are a bit sluggish and then start to find your next best seller.
Dan Wilson, Editor, Tamebay.com
It feels great to be busy fulfilling orders, but other sellers will soon notice and try to emulate you. Your competitors are just as hungry to build their business as you are – even more so if you’re doing well and they aren’t. They will source the same products any way they can, including buying from you and looking for the manufacturer’s mark.
Online retail is competitive and fast-moving. Successful sellers don’t stand still. They are always looking for new suppliers and products, and new ways of sourcing inventory.
2. Start with Marketplace Research
First, use Terapeak to analyze past sales – is there any demand? Next buy a small quantity and see if it sells, the proof is in the pudding. Don’t think something won’t sell because everyone has it – we do really well on things which can be bought in the big supermarkets. Lastly, be upfront about restrictions. Some suppliers don’t like eBay, Amazon or international sellers.
Trevor Ginn, Managing Director, Hello Baby
It’s tempting to start product sourcing by looking at what you can buy – what is being offered by suppliers. But that’s only half the puzzle. A seemingly great product at a great price might not move at all on your marketplace of choice – it might just not be the right fit for the buyers who go there.
Alternatively, other sellers may have a better source, or be working to lower profit margins. Get a feel for the market with market research tools such as Terapeak, then find a way to test – either with small quantities or even no stock at all, as described in Failure: The Key to Online Retail Success.
3. Use a Model That Works for Others
I’ve seen a number of models. A lot of sellers are going to China to try and source products, and private labeling them. Others are using bundles to create unique products – trying to differentiate. A lot of businesses buy clearance products and repackage them in some way, others find unique designer brands from obscure parts of the world and bring them over.
Dan Burnham, Head of Account Management, eSellerPro
It might not work to source the same products as other sellers, but it can work to adopt the same approach in a different category.
Look at what successful sellers are doing, but not just at the products they sell. Where are they sourcing from? Are they putting multiple products (or parts) together, or adding value another way? If the product has a brand, is it well-known in your country or elsewhere, or have they created it themselves? What could you borrow and experiment with?
Lots of brands would rather work with few sellers. That’s good because they’re working with sellers who will try to stick to proper prices – as long as it’s legal. When a seller buys stock, it’s up to them to do whatever they want with that stock. But if they panic and drop the price, and break the market, there’s little chance they’ll get stock from that brand again. Think about the long-term opportunity.
Tayyab Akhlaq, Managing Director, Genie and the Geek
New sellers often want to sell branded products, but the most popular brands are highly competitive and often tightly controlled by the manufacturer. Also, margins may be much slimmer than you expect.
However, there are lesser-known brands keen to find reliable retailers. They probably won’t appreciate it if you just want to sell their products as cheaply as possible, but that’s not the only way to sell successfully. If your store complements their image, and you are keen to become an enthusiastic advocate of their brand, there could be a great deal to be done.
4. Go to Trade Shows…
To find suppliers type whatever you are interested in into Google followed by “trade fair”. Every single supplier in the world really wants to speak to you. Just like the marketplaces have buyers looking for your products, you as the business owner are the customer of the supplier. The suppliers want to speak to you and you should never forget that.
Matthew Ogborne, Co-founder, UnderstandingE.com
When you sell online, it’s easy to forget that the offline world still exists, and still matters – it matters a great deal!
Retail has translated fantastically to the internet, but wholesale a little less so. While consumers are comfortable to buy without touching the product, or seeing the seller, the human touch is still important when dealing with manufacturers and distributors.
Many of those suppliers bring their products, and their people, to the thousands of trade shows that take place across the world every year.
A lot of people ask me where to find product. I think finding product is the easiest part of our business: what sellers need to do is look in their local area for gift shows. Every manufacturer in the world has got to find people to sell their products – they’re looking for sellers. You’ll find deals when you leave the computer and walk around the show floor. You’ll be amazed.
John Lawson, CEO, 3rd Power Outlet and ColderICE Media
5. …and Also Look Closer to Home
Sourcing product at the right price is a huge challenge. One tip for UK sellers is to source products from EU states where they are comparatively cheaper – Zentrada is a wholesale marketplace to consider. You may also want to look into products made in the UK – there are still companies like British Thermals manufacturing here.
Prabhat Shah, Founder, DayToDayeBay
China has been a manufacturing powerhouse for years now, and many sellers often look there first. But sourcing is about being different, and looking for manufacturers close to home could uncover some great suppliers.
There can also be market appeal in selling local products – try telling buyers where your items are made and see if sales increase.
6. Dropship Differently
Dropshipping – where a supplier ships individual orders directly to the buyer on a seller’s behalf – has some negative associations. It has been presented as the foundation for a perfect online business, a get-rich-quick scheme where you make a fortune without having to leave your home or touch an order. Of course, nothing is that simple or easy.
Looking behind the hype, dropshipping is not a scam nor a recent invention. It has been commonplace in offline retail for many years, particularly for large items such as furniture, where retailers take orders and pass the buyer’s details directly to the manufacturer. You may have bought dropshipped products, and never even noticed they were sent from a different company.
In the world of online retail, there are still opportunities in dropshipping, and it’s true that you should never have to touch an order. But profit margins can be slim – sometimes impossibly so – and expensive pre-packaged lists of suppliers are unlikely to reveal good sources. Successful sellers need to look elsewhere.
When you’re looking for suppliers, don’t let a really ugly, hideous, nineties-style outdated website scares you away. There are a lot of legitimate wholesale suppliers and dropshipping suppliers that have terrible websites but can still be great quality suppliers with great products and expertise. Most wholesalers don’t spend a lot of time making a really pretty website.
Andrew Youderian, Founder, eCommerceFuel
When margins are low, getting your calculations right is hugely important. Even though you don’t have to handle orders, it still takes time to list and market the products, and communicate with customers.
When you are selling on a marketplace, it’s going to be a numbers game. If you dropship, the amount of time, energy and resources will be the same regardless of whether your product costs $1 or $1,000 – so sell something a little pricey. On a $500 product, even if you net just 5% on each sale, it’s still $25, whereas 5% on a $20 product is just $1! Just make sure there is sufficient demand for whatever it is you sell.
Shabbir Nooruddin, Author, The RIGHT Way To Do Ecommerce Marketing
Find out more in Cody Stallard’s guide to dropshipping.
7. Get Close to the Source
Get as close as possible to the manufacturer. As the product passes through more and more hands, margins get smaller and price competition gets tougher. Sellers need to do the math and decide whether they can handle a large batch from the manufacturer or a smaller batch from a distributor.
Ofir Amsalem, Head of Ecommerce, AVH Diamonds
The concept of economies of scale is taught early in many business courses. Simply put, dealing with larger quantities should reduce costs, because fixed expenses such as warehousing and staffing are spread out more thinly. For manufacturers and suppliers, it is normally cheaper for them to sell large quantities than small quantities – and they will often pass some of that saving on.
Dropshipping can be a great way to get started, but you are going to want to consider bringing products in-house. Make sure you think about that when you’re getting started. Call the wholesaler, and even more importantly call the manufacturer, and ask them “I understand this item costs $20 wholesale, but if I’m buying in bulk – at volume – and I stock them, what do they cost?”
Andrew Youderian, Founder, eCommerceFuel
8. Get Off the Bandwagon
Don’t follow the herd. Many sellers burn all their time and money jumping on and off bandwagons. Instead, source products that other sellers are too afraid to sell or they feel is “beneath” them. I’ll seek out liquidated goods that are $1 each and sell them on Amazon for $9 to $12 each. Most other sellers won’t bother with that, but I’m still making at least a four-to-five net multiple on my spend.
Jordan Malik, Founder & CEO, FindSpotter
Offering a popular product can give sellers a feeling of safety – if lots of other people are selling it, doesn’t that mean it must be a good choice? Surely every seller of that product will get some orders?
Perhaps a new seller jumping on a bandwagon will get a few orders, but perhaps they’ll get none at all. I explored the need to give buyers a compelling reason to buy in a previous article. Even if orders do come through, the level of competition is likely to squeeze margins until they are razor-thin – or even negative. That means you lose money – but clear down the stock – on every order.
Some sellers make money from popular products, but they are often the first, or the largest, sellers to start selling them. Either they got in early and established themselves, or they have the sales volume and purchasing power to make the most out of thin profit margins.
Find products that sell more than fifteen times a month, but not the most popular products – every man and his dog is selling them. You’ve got to go a little bit off the radar. Once you’ve done that, go to somewhere like Alibaba. We only buy from Alibaba gold suppliers, and won’t sell anything that’s got a margin of less than 50% after all expenses. All you need to build a million-dollar eBay business is a portfolio of average products.
Neil Waterhouse, Author of Million Dollar eBay Business From Home
9. Don’t Rely on Bulk Buying
You don’t really need to be buying in depth any more, a lot of suppliers have the stock right through the year. If you are nimble and clever enough, you don’t need to panic and buy the whole line out. Trends tend to move quicker than ever. We’ve built a system for seasonal fashion items that changes our pricing every week, and reduces the price if we think we’ve got too much stock.
Tayyab Akhlaq, Managing Director, Genie and the Geek
Yes, you can get a lower unit price when buying in bulk, but you also have to pay out a lot of cash up front. If the stock sells slowly, a lot of capital that you could have spent on better products is tied up. If the stock sells very slowly, or not at all, you may have to sell at a loss – a loss which is magnified by the high number of units.
Buying in bulk can makes sense in some circumstances, but your business may be stronger if you can avoid it – particularly in categories such as clothing.
10. Get to Know Your Supplier…
Product sourcing is one of the most important aspects of your ecommerce business and so you need to view it as building long-term mutually beneficial relationships. Don’t try to become your supplier’s biggest customer but focus on becoming their favorite customer. Get to know them and allow them to get to know you. Whenever issues come up, work with them in a professional manner so when you need a favor in return they’re more than happy to go the extra mile for you.
Brandon Dupsky, CEO, eCommerce Money for Nothing
When selling to consumers through marketplaces like eBay and Amazon, there’s not much opportunity to build a relationship with buyers.
The business-to-business relationship between retailer and supplier is different. A good relationship can mean the supplier contacts you first when they have a new product line, and works hard to put things right if a line is faulty. A bad relationship can mean missed opportunities and slow service.
11. …and Make Sure Your Supplier Knows Their Stuff
How well does the supplier know their product lines? Ask them some in-depth questions about the different lines, about the end users, about the manufacturers. If they can’t talk for hours and hours about their products you may want to go elsewhere. It shows a level of expertise and means they know their niche well. Having a really knowledgeable rep at a wholesaler is an incredible resource for your learning and development – it helps you add value to the products.
Andrew Youderian, Founder, eCommerce Fuel
Unlike traditional bricks-and-mortar retail, online retail has exceptionally low barriers to entry. Competition on the high street is tough, and online it’s fierce.
Products that are complex, expensive or specialized benefit greatly from detailed descriptions, videos, FAQs, buying guides and fast customer support. Sellers who build their knowledge so they can provide that will stand out from the crowd.
12. Have a Backup Plan
How vulnerable are you to your supplier going out of business? It happens and sometimes with catastrophic effects on the businesses they supply. It’s vital to have a plan B and even C so that if one of your suppliers goes bust, it won’t drag you under too.
Dan Wilson, Editor, Tamebay.com
If things are going great, it’s depressing to think about how it could all go wrong. But businesses fail every day, even when their sales are healthy.
Just identifying an alternative supplier, and letting them know you exist, provides some level of security if the worst happens to your current source.
In Closing
Product sourcing has been changed, but not completely revolutionized, by the internet. Personal relationships with suppliers remain important. Unlike selling to consumers online, it can be the norm to speak to a supplier rather than the exception.
Sourcing is an activity where software can help a great deal – our directory category for Product Sourcing is relevant here – but it tends to resist complete automation. The intelligence, creativity and hard work of people still make the difference between good and bad sourcing – not just who has the best software.
So how can you become proficient at sourcing inventory? I haven’t tried to give you a secret formula, a recipe that will work for everybody, because there isn’t one. But a number of experts have been generous enough to share their insights, tips and experiences. The challenge is to figure out what that means for your business, and only you can do that.
I hope you’ve found this useful! I’d love to hear your opinion in the comments below – please speak your mind.